United States v. Mcdermott

245 F.3d 133 (2nd Cir. 2001)

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Nature of the Case

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Facts

D was the president, CEO, and Chairman of Keefe Bruyette & Woods ('KBW'), an investment bank headquartered in New York City that specializes in mergers and acquisitions in the banking industry. Around 1996, D began having an extramarital affair with Kathryn Gannon, an adult film star. D made numerous stock recommendations to Gannon. Unbeknownst to McDermott, Gannon was simultaneously having an affair with Anthony Pomponio and passing these recommendations to him. Neither Gannon nor Pomponio had extensive training or expertise in securities trading, together they earned around $170,000 in profits during the period relevant to this case. The government indicted D, Gannon, and Pomponio for conspiracy to commit insider trading and for insider trading on the theory that D's recommendations to Gannon were based on non-public, material information. Telephone records revealed that D and Gannon engaged in approximately 800 telephone calls during the charged period, including up to 29 calls in one day. Trading records revealed correlations between the telephone calls and stock trades. D was sentenced to eight months' imprisonment, to be followed by a two-year term of supervised release, a $25,000 fine and $600 in special assessments. D appealed on legal insufficiency.